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PTAB Petitions Do Not “Arise Out Of” Licensing Agreement

On October 16, 2018 Magistrate Judge Gold, of the Eastern District of New York, issued a report recommending that Plaintiff Alexsam, Inc. (“Alexsam”) be denied leave to file a supplemental complaint against Defendant Mastercard International Inc. (“Mastercard”) asserting Mastercard breached an agreement by filing CBM petitions against Alexsam’s patents.

The dispute in this matter arises out of a licensing agreement between Alexsam and Mastercard that permitted Mastercard, for a fee, to engage in certain transactions using technology covered by Alexsam-owned patents. Claiming that the credit card company failed to make its monthly payments, Alexsam brought a breach of the contract suit against Mastercard. Mastercard then went on the offensive and, inter alia, filed petitions before the Patent Trial and Appeal Board (“PTAB”) for a Covered Business Method (“CBM”) review of the two licensed patents.

Following Mastercard’s filing, Alexsam moved for leave to supplement its complaint to allege that Mastercard violated a separate provision of the licensing agreement—the venue provision—by the veryfiling of the petitions with PTAB. Under the venue provision, “any legal action, suit or proceeding brought by [a party] in any way arising out of” the licensing agreement must be brought in either the United States District Court for the Southern or Eastern District of New York or in New York state court.

Magistrate Judge Gold, siding with Mastercard, recommended denying Alexsam’s request for leave to file a supplemental complaint (with this claim) against Mastercard. The Court found that amendment would be futile because, among other reasons, the petitions were not subject to the venue provision: the Petitions did not “arise out of” the licensing agreement. Examining Second Circuit precedent, Judge Gold noted that “a claim ‘originates’ from a contract when a party asserts rights or seeks to enforce duties under the contract.” Here, though the petitions filed by Mastercard “invoke[d] the existence of Alexsam’s instant breach of contract action to establish standing, [the petitions] [did] not assert any rights or seek to enforce any duties under the License Agreement.”

The Court went on to note that enforcing the venue provision to preclude a party from petitioning for PTAB review would be “unreasonable and unjust” and thus unenforceable as against public policy. Finally, Judge Gold found that Alexsam’s damages theory for this new venue-provision-breach-claim, i.e., that it was entitled to damages because it “hired counsel and incurred fees and expenses to handle the litigation before the PTO,” ran counter to the American Rule which prohibits a party from recovering its attorneys’ fees.